M E M O

FROM: INTERNAL AUDIT TO: Ag MD/CE

DATE: 19/08/2016
RE: SUMMARY REPORT ON THE PROPOSED
RENOVATION/REHABLITATION WORKS ON THE 15 STOREY MAMMAN
KONTAGORA HOUSE (MKH) SITUATED AT NO. 23 MARINA LAGOS
1. Introduction
We refer to your verbal directives to review Support Services Group’s request
for the release of the global sum of N180,668,525.85 monthly in respect of
various contracts that were awarded by the Bank for the renovation works at
MKH building Marina, Lagos. The request was hinged on management’s
decision directing all works to be carried out day and night in order to achieve
the 6 months set target of completion of project.

In order to meet up with cash backings, Support Service Group proposed a
“global approval” for the sum of N180,668,525.85 to be set aside monthly
by management in anticipation of a fortnight valuation/payment to
contractors in order to avoid time lag in the execution of the project.

2. Preamble/Brief History
At its 180th meeting dated 19th & 20th November 2013, the erstwhile Board of
FMBN took the decision to renovate MKH building. The table below is the
summary of all the contracts awarded at that decision by the Board;

Furthermore, due to the disengagement of the MKH Building Facility Manager
that was hitherto responsible for powering the Bank’s 500KVA generator by
the erstwhile Board, the Bank through the Lagos Zonal Office assumed the
responsibility of fuelling the generator for its operations. Support Services
Group averred that as at the time of signing the contract, the power source
was envisaged to be provided by the Bank during the execution of the
contracts.

Thus, the Bank met with all contractors handling the project at the site and
agreed that it shall be responsible for fuelling the 500KVA generator located
at the site to enable their work resume day and night.

To this end, Support Services Group commenced due process which
culminated in the selection of DSD Global Resource Ltd for the supply of
11,205 litres of diesel at the rate of N200/litre;

3. Internal Audit Professional Opinion
The following are our professional opinion on the entire project;

i. Due process was not followed at the inception of some of these
contracts. Moreover, Public Procurement approval thresholds in the
award of some contracts were not adhered to. Though there was an
attempt to correct some anomalies especially on contracts that
exceeded the Board’s approval thresholds of the sum of N250million
(i.e. by obtaining Minister’s ratification on the contracts above the
N250million threshold earlier approved by the erstwhile FMBN
Board), but that still did not suffice as the then Minister categorically
stated in the letter addressed by the Bank to the Minister on
ratification of the approvals;
MD (FMBN): Ratified but please proceed in line with all extant procurement
laws and financial regulations - dated 13/12/2013.
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The table hereunder is a summary of all the contracts and their level
of compliance with due process at the initial award stage;

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ii. Internal Audit Group observed contract splitting in the award of the
job as the entire job of renovating the MKH building could have been
assigned to a single contractor with requisite experience and capacity
to carry out the job. That would have resulted to lower cost savings
and efficiency in the execution of the contract.

iii. There was no cash-flow projection to support the sources of funding
for the project which is considered a long term infrastructural
spending. The projected was expected at the commencement to
engulf more than N2billion. We expected that since FMBN was
undercapitalized with negative equity arising from the burden of
Non-Performing Loans (NPLs), the then Board/Management ought to
have analyzed the funding options for the project even if it was to be
financed from the NHF pool.

iv. There is need for project’s consultant in conjunction with the
contractors and Support Services Group to come up with up-to-date
detailed valuation report of the work done for each of the lots. This
is to enable Internal Audit certify the level of work done (as indicated
in the memo to Hon Minister for milestone payment) by visiting the
site.

4. Recommendations
In view of the above, and in line with management resolve to ensure
judicious utilization of NHF forthwith and the desire to recoup the Bank’s
lost funds, Internal Audit hereby recommend the following for
management’s consideration and approval;

i. Management should direct GH (SS) to immediately collate the recent
valuation reports (detailed) for each of the lots and forward same to
Internal Audit for certification in line with due process and Ministerial
approval dated 10th December 2013.

ii. All milestone payments/disbursements to contractors should be in line
with their terms of engagement as specified in the offer letters.

iii. Provision of power (i.e. fueling the Bank’s 500KVA Generator)
should be handled in line with due process and procurement laws by